Franchisor Issues

Steve Strauss, founder of www.theselfemployed.com, gives tips for those considering franchise ownership.

Steve Strauss headshotQ: I have been involved in business for many years and now have an opportunity to buy into a franchise and am wondering if you have any experience in this realm. This is a well-known business chain and it seems like a great opportunity, but I am not sure I want to have a franchisor looking over my shoulder. Thoughts?

Jefferson

A: You are right to be concerned about this because it is a legitimate issue. There are a lot of great things to be said about franchising, but for good or ill, it is true that the franchisor will have a significant say in how you run your franchise. For someone new to business, that is probably a good thing, but for someone with a lot of experience, it may take some getting used to.

Either way, that the franchisor will be involved in your business makes sense if you think about it. The franchisor is entrusting you with its name, brand, system, and proprietary information. As such, it wants to make sure that you are not only taking care of those assets, but also, that you are running the business the right way because, after all, that’s what a franchise really is – a certain way of doing business that is designed to get predictable results.

For the new entrepreneur, that “Big Brother” aspect of franchising can actually be comforting. After all, it is the franchisor who invented and built this business, the franchisor who created the brand, and the franchisor who knows this business and how to succeed in it best. So having the franchisor’s input can really help the newbie get on track, stay on track, and help guide the business towards lasting success.

But as the franchisee matures, or when the franchisee is someone who has run a business before, the influence of the franchisor is not always so welcome. The experienced entrepreneur may want to do things his or her own way. Too bad. The whole idea of a franchise is that you are buying into a proven way of doing business, a tried-and-true, by-the-numbers system that, if followed, should lead to predictable results.

So there is little room, especially in a well-established franchise system, for detour. The system is the system for a reason. The franchisor wants the French fries in Milwaukee to taste the same as the French fries in Birmingham, and that is only possible if Milwaukee and Birmingham makes the fries the same way.

But, with all of that said, one other thing is equally true: Great franchisors listen to their franchisees. It is not, or at least should not be, a dictatorial, top-down system where the franchisor talks and the franchisee listens. Great franchisors consider themselves partners in the success of the franchisees, and as such, allow for innovation within the framework of the franchise structure. For instance, not only was the Big Mac invented by a McDonald’s franchisee, but so too were:

  • The Egg McMuffin
  • The McFlurry
  • The Filet-O-Fish

The thing is though, not all franchisors are created equal. Some listen, others don’t. Some are great to work with and others are not. So how do you know? You have to do your homework. There are two places to get the lowdown:

Other franchisees: This is the key. Before ever buying into a franchise system, speak with as many current franchisees as you can. These folks will tell you whether the franchisor is a good, or bad, teammate.

The Franchise Disclosure Document (FDD): Before ever signing a contract for the franchise, you will get the FDD. Item 3 lists the litigation history of the franchisor. Pay attention to that section.

Franchising is great, but don’t go into it with your eyes closed, because even if you do, your franchisor will be there to not only open them for you, but tell you what to look out for.

Today’s Tip: For more information about franchising in general, check out the International Franchise Association.

 

Steven D. Strauss is a lawyer and writer and is one of the country's leading experts on small business as well as an international business speaker. The best-selling author of 17 books, his latest is the all-new 3rd ed. of The Small Business Bible. You can listen to his weekly podcast, Small Business Success Powered by Greatland, visit his new website for the self-employed, TheSelfEmployed, follow him on Twitter, and "like" TheSelfEmployed on Facebook. You can e-mail Steve at: sstrauss@mrallbiz.com. © Steven D. Strauss